Discharging Student Loans In Bankruptcy

By Andrew M. McKenzie
Beresford Booth PLLC
Edmonds, Washington

Student loans are treated differently than other unsecured debts in bankruptcy. A debtor seeking to discharge liability for a student loan must demonstrate “undue hardship.” While this standard is more stringent than for ordinary unsecured debts, the a very high percentage of debtors with lingering student loan debt assume that student loans are by definition non-dischargeable under any circumstances. A recent study found that only about 0.1% of debtors with student loan debt filing for bankruptcy make any attempt to discharge the student loans. Yet, statistically, when debtors decided to challenge their student loans, they successfully established undue hardship nearly 40% of the time. Because “undue hardship” is not statutorily defined, courts have used a “totality of the circumstances” test to determine whether a given case rises to the level of an undue hardship. In some cases, the debtor’s circumstances may not rise to the level of justifying a complete discharge, but may still justify a reduction in the amount owed. Knowing that a client may have a reasonable chance of discharging or reducing a student loan is an important bit of information to assist with strategy, be it an actual bankruptcy filing or negotiations with creditors.

The lawyers at Beresford Booth possess extensive litigation experience and would be happy to assist you with disputes pertaining to any kind of debt, whether you are the debtor or the creditor.